Mining Tax Guide November 2009

Transcription

1 This document is made available electronically by the Minnesota Legislative Reference Library as part of an ongoing digital archiving project. Mining Tax Guide Photo courtesy of U. S. Steel November 2009

2 2009 Distribution of Taconite Production Tax 2008 Production Year Total Taconite Production Tax $98,144,786* Production tax is $2.316 per taxable ton. The three-year average taxable tonnage was 38,700,625 tons.... * Included is $8,514,138 from the state general fund (22.0 cpt) cpt = cents per taxable ton Cities and townships $12,240, cpt School districts $18,859, cpt Counties $14,216, cpt Property tax relief and misc. $9,656, cpt IRRRB $30,742, cpt Other $12,429, cpt City and Township Mining & Conc Fund** $2,087, cpt Township Fund $1,161, cpt Taconite Municipal Aid** $6,568, cpt Taconite railroad $591, cpt Mining effects** $1,802, cpt Transferred from schools for city/ township levy reduction $30, cpt Taconite School $ Fund** $1,579, cpt*** Regular School $.1572 Fund** $6,939, cpt*** Taconite railroad $1,106, cpt *** Building Maintenance Fund $1,548, cpt Taconite Referendum $3,324, cpt School bond payments $4,360, cpt Regular County Fund** $8,904, cpt County Road and Bridge Fund** $4,527, cpt Taconite railroad $784, cpt *** 22.1 cents per ton will be subtracted from state aids or levies a taconite school district would otherwise receive. Taconite Property Tax Relief $9,656, cpt Guarantee Fund M.S M.S IRRRB Fund** $3,472, cpt IRRRB Fixed Fund $1,252, cpt Taconite Env. Protection Fund $10,280, cpt Producer Grant & Loan Fund $3,196, cpt IRR Educational Revenue Bonds $1,410, cpt Douglas J. Johnson Economic Protection Trust Fund $3,197, cpt Iron Range Higher Education Acct $1,935, cpt Taconite Economic Development Fund $12,213, cpt Range Association of Municipalities & Schools $139, cpt Hockey Hall of Fame $77, cpt **Payments to the funds are guaranteed at a percentage level of the base year (1983 or 1999) by M.S for local aids and M.S for property tax relief. Renewable Energy Inititive $5,998, cpt

3 Table of Contents 2009 PRODUCTION TAX DISTRIBUTION... Inside front cover Minerals and Mining Agencies... i INTRODUCTION...1 TACONITE PRODUCTION TAX (M.S , M.S ) Legislation... 6 Distribution of Funds (M.S )...7 Aid Guarantee (M.S )...11 Taconite Production Tax Distribution Calculation...12 Taconite Property Tax Relief...14 Taconite Homestead Credit Example...15 Direct Reduced Iron (DRI)...24 IRON RANGE RESOURCES...25 OCCUPATION TAX (M.S ) Occupation Tax Final Directive...30 Backup 2008 Data to Final Directive...31 INCOME TAX WITHHOLDING ON MINING AND EXPLORATION ROYALTY (M.S )...38 SALES AND USE TAX - Taconite and Iron Ore...41 CAPITAL EQUIPMENT EXEMPTIONS AND REFUNDS...43 SALES AND USE TAX - Aggregate Material...44 AD VALOREM TAX ON AUXILIARY MINING LANDS FOR TACONITE OPERATIONS (M.S )...45 St. Louis County Mining Land Assessment Schedule...45 AD VALOREM TAX ON UNMINED TACONITE (M.S )...46 AD VALOREM TAX ON UNMINED NATURAL IRON ORE (M.S , M.S ; M.S , M.S , M.S )...47 AD VALOREM TAX ON TACONITE RAILROADS (M.S )...49 AD VALOREM TAX ON SEVERED MINERAL INTERESTS (M.S , M.S , M.S )...50 TAXES ON OTHER MINING AND/OR EXPLORATION...52 Ad Valorem Tax (M.S M.S. 273)...52 Net Proceeds Tax (M.S )...53 Occupation Tax/Corporate Income Tax (M.S )...54 Withholding Tax on Royalty (M.S )...54 Sales and Use Tax (M.S. 297A)...54 GLOSSARY OF TERMS...55 MINING INDUSTRY TAX CALENDAR...57 MINNESOTA MESABI RANGE MAPS...58 Map of Northeastern Minnesota...59 Introduction Figure 1 Iron Ore Production Comparison... 1 Figure 2 Distribution of Mining Taxes... 2 Figure 3 History of Minnesota Taconite Production... 3 Figure 4 Minnesota Taxes Levied on Taconite... 4 Taconite Production Tax Figure 5 Douglas J. Johnson Economic Protection Trust Fund and Environmental Protection Fund Figure 6 Taconite Property Tax Relief Fund Balance Figure 7 Taconite Property Tax Relief Fund Distribution Figure 8 57% & 66% Taconite Homestead Credit Example Figure 9 Taconite Production Tax Distribution - ( ) Figure 10 Taconite Production Tax Distributions to Cities & Townships & 18 Figure 11 Taconite Production Tax Distributions to School Districts Figure 12 Taconite Production Tax School Bond Credits and Payments Figure 13 Taconite Production Tax Distributions to Counties Figure 14 Taconite Production Tax and Tax Revenue - by Company Figure Production by Product Type Figure 16 The Changing Trends in Minnesota Taconite Production Figure 17 Production Tax Rate History & Index Summary (new) Figure 18 Taconite Produced and Production Tax Collected Direct reduced Iron (DRI) Figure 19 World Direct Reduced Iron Production IRON RANGE RESOURCES AND REHABILITATION BOARD Figure 20 Fiscal Year 2010 I.R.R. Budget Figure 21 Taconite Economic Development Fund Figure 22 Taconite Industry Investments OCCUPATION TAX Figure 23 Occupation Tax Mine Value-Taconite Figure 24 Occupation Tax Mine Value and Occupation Tax Paid Figure 25 Occupation Tax Paid By Company ( ) Figure 26 Reconciliation of Occupation Tax Paid and Production Tax Tonnages Figure 27 Crude Ore Mined Figure 28 Occupation Tax Collected on Iron Ore and Taconite Production Figure 29 Taconite Industry Occupation Tax Report Averages on a Per Ton Basis Figure 30 Taconite Industry Occupation Tax Report Average Cost Per Ton INCOME TAX WITHHOLDING ON MINING AND EXPLORATION ROYALTY Figure 31 Royalty Paid and Income Tax Withheld Figure 32 Average Royalty Cost Per Ton of Pellets Produced Figure 33 Royalty Costs Per Ton (graph) SALES AND USE TAX Figure 34 Use Tax Paid AD VALOREM TAX ON UNMINED TACONITE Figure 35 Unmined Taconite Tax Paid AD VALOREM TAX ON UNMINED NATURAL IRON ORE Figure 36 Minimum Rates Figure 37 Iron Ore Ad Valorem Tax Payable AD VALOREM TAX ON TACONITE RAILROADS Figure 38 Taconite Railroad Ad Valorem Tax Assessed AD VALOREM TAX ON SEVERED MINERAL INTERESTS Figure 39 Tax Collection and Distribution Figure 40 Severed Mineral Interest Return TAXES ON OTHER MINING AND/OR EXPLORATION Figure 41 Index of Other Mining/Exploration Taxes Figure 42 Mining Employment and Wages... 54

4 Minerals and Mining Agencies MINNESOTA REVENUE 600 North Robert Street, St. Paul, MN WARD EINESS, Commissioner (651) ROGER SWANSON, Director, Petroleum & Special Taxes Division (651) Fax (651) Minerals Tax Office 612 Pierce Street, Eveleth, MN (218) Fax: (218) ROBERT WAGSTROM, Engineering Specialist NORMA J. KROGERUS, Revenue Tax Specialist CAROLYN KOSKELA, Secretary IRON MINING ASSOCIATION 505 Lonsdale Bldg 324 West Superior Street (218) Duluth, MN Fax: (218) CRAIG PAGEL, President IRON RANGE RESOURCES (IRR) P. O. Box 441, 4261 Hwy 53 South, Eveleth, MN (218) Fax: (218) SANDY LAYMAN, Commissioner BRIAN HITI, Deputy Commissioner MATT SJOBERG, Director, Development Strategies JEAN DOLENSEK, Director, Administratiave Services DOUG GREGOR, Assistant Attorney General AL BECICKA, Assistant Attorney General Mining, Mineral Development and Reclamation 1003 Discovery Drive, Chisholm, MN (218) Fax: (218) DANIEL JORDAN Mining and Reclamation Programs Supervisor MINNESOTA DEPARTMENT OF NATURAL RESOURCES (DNR) 500 Lafayette Road, St. Paul, MN Fax: (651) MARK HOLSTEN, Commissioner (651) DNR Lands & Minerals Division 500 Lafayette Road, St. Paul, MN Fax: (651) MARTY VIDAS, Director (651) DAVE OLSON, Assistant Director KATHY LEWIS, Assistant Director DENNIS MARTIN, Mineral Potential Lands & Minerals Division 1525 Third Avenue East, Hibbing, MN (218) Fax: (218) JOHN ENGESSER, Assistant Director (218) ARLO KNOLL, Reclamation Manager (218) PETER CLEVENSTINE, Manager of Engineering (218) NATURAL RESOURCES RESEARCH INSTITUTE University of Minnesota, Duluth 5013 Miller Trunk Hwy., Duluth, MN (218) Fax: (218) MICHAEL LALICH, Director DONALD FOSNACHT, Director Center for Applied Research and Technology Larry Zanko, Research Fellow Coleraine Minerals Research Box 188, Coleraine, MN DAVID HENDRICKSON, Director, Minerals Research (218) St. Louis County Inspector of Mines St. Louis Co.Garage 7823 Highway 135 East, Virginia, MN (218) Barry D Lesar, Inspector of Mines The Minnesota Mining Tax Guide is published by the Minnesota Department of Revenue. Alternative formats for persons with visual impairments or other disabilities are provided upon request. TTY users, call Minnesota Relay Service at 711. The 2009 Mining Tax Guide can be found on the Minnesota Department of Revenue website: To find the guide: At the bottom of the home page, click on Publications Scroll down to Other Publications Click on 2009 Minnesota Mining Tax Guide Minerals tax forms and information: Contact Information: Minerals Tax Office 612 Pierce Street Eveleth MN Phone (218) Fax (218) i

5 The Minnesota Mining Tax Guide is published to identify all Minnesota mining-related taxes paid by the mining industry. This book strives to simplify the complicated tax statutes using language that is easy to understand and non-technical narratives, tables, graphs and flowcharts. Taconite Production Tax The taconite production tax is the largest tax paid by the iron mining industry. It is a major source of revenue to the counties, municipalities and school districts within the taconite assistance area. The production tax distributed in 2009 is the tax due for the 2008 production year. The taconite production tax rate for concentrates and pellets produced in 2008 was $2.316 per taxable ton. The taxable tonnage for 2008 is the average tonnage produced in 2006, 2007 and The inside of the front cover illustrates where the production tax is distributed. It shows both the cents per ton (cpt) distribution and the total amount distributed to various funds. The funds to which the production tax are distributed are explained on pages 7 through 11, Distribution of Funds. Introduction Figure 1 State Taxes Other major taxes paid by the mining industry are the occupation tax, similar to an income tax, pages 29-37, and sales and use tax, pages These taxes are deposited in the State General Fund. County Taxes Other taconite and iron ore ad valorem (property) taxes are paid directly to the counties, pages These are property taxes assessed on taconite railroads, unmined taconite ore, auxiliary mining lands, unmined natural ore and severed mineral interests. Taxes on Other Minerals Taxes on minerals other than taconite or iron, such as gold, silver, copper, nickel, lead and other nonferrous minerals are explained on pages Aggregate Material Sales/Use Tax An explanation of sales and use tax on aggregate material is found on page 44. Iron Ore Production Comparison World U.S. Minnesota Millions of Long Tons Produced United States includes Minnesota United States and World Production numbers from American Iron Ore Assocation Starting with 2002 Production, numbers are from the U.S.Geological Survey 1

6 Figure 2 Distribution of Mining Taxes Production year 2008 tax obligations - $132,604,832 $98,144,786* $23,388,181 $9,554,673 $415,491 $1,101,701** None Taconite production tax Occupation tax Sales and use tax Income tax (withholding) on mining royalty Various ad valorem and property taxes Net proceeds tax Cities and townships School districts Counties IRR Miscellaneous State General Fund 50% Elementary and secondary education 40% University of Minnesota 10% State General Fund 100% These taxes are related to property tax. They are paid to the county in which the property is located and then distributed proportionately among the counties, cities, townships and school districts. **Taxes included: State General Fund 100% -Tax on unmined taconite $466,991 -Tax on severed mineral interests 541,973 -Ad valorem tax on natural iron ore 83,760 -Ad valorem tax on taconite railroads 8,977 $1,101,701 Cities and townships School districts Counties Indian Affairs Council Within Taconite Tax Relief Area Distribution to local governments, schools and IRR funds similar to the taconite production tax Outside the Taconite Tax Relief Area State general fund 100% Payable 2009, except severed minerals are payable 2008 * Includes $8,514,138 appropriation from the State of Minnesota general fund. No minerals subject to this tax are currently mined. 2

7 Figure 3 History of Minnesota Taconite Production Year Butler Eveleth Hibbing Inland Erie National Reserve Minntac Total ,449 1,108,334 1,170,054 3,084, ,652,994 14,634,249 2,132,224 20,419, ,109,000 3,763, ,106 8,414, ,144,214 5,446, ,365 13,389, ,772,654 5,652, ,913 13,187, ,593,349 6,153, ,890 14,519, ,852,473 8,044, ,405 16,695, ,009,243 9,667, ,713 18,505, ,700 52,826 8,039,657 10,023, ,459 19,004, ,536,370 8,551,944 10,829, ,544 21,676, ,617,409 1,738,068 9,900, ,918 9,695, ,950 24,311, ,334,752 1,800,124 10,718, ,663 10,002,064 4,573,743 30,269, ,599,906 1,916,899 10,198,586 2,285,744 10,352,579 6,056,598 33,410, ,637,655 1,986,000 10,743,031 2,728,932 10,825,617 6,426,609 35,347, ,647,930 2,055,131 10,192,628 2,813,242 9,628,920 6,439,695 33,777, ,302,971 2,141,233 9,972,068 2,420,056 9,042,632 8,674,583 34,553, ,563,093 2,065,042 11,657,631 2,578,023 10,424,648 12,540,908 41,829, ,523,518 2,171,678 10,897,352 2,476,793 10,367,742 12,616,204 41,053, ,437,411 2,164,677 10,884,511 2,433,579 10,695,052 12,193,687 40,808, ,393,347 2,291, ,419 10,778,287 2,461,083 10,052,204 12,294,537 40,574, ,686,590 2,572,909 2,150, ,457 4,646,451 2,621,627 5,033,248 7,428,136 26,371, ,507,633 4,924,732 5,408,928 1,925,378 7,424,801 5,096,348 9,154,801 12,927,230 49,369, ,552,255 5,604,688 6,250,348 2,238,443 8,820,258 5,367,815 7,033,658 16,492,186 54,359, ,575,454 5,778,256 6,800,202 1,407,598 5,679,043 2,896,456 4,582,997 14,147,065 42,867, ,194,960 5,879,859 7,125,897 2,385,967 7,943,641 3,424,392 7,643,807 12,381,951 48,980, ,040,799 4,611,260 5,703,410 1,792,702 3,963,897 1,291,211 1,520,113 3,307,025 23,230, ,556,523 3,265,821 4,205,470 2,136,155 2,045,065 3,270, ,318 7,708,073 25,173, ,989,952 3,932,117 6,075,049 2,032,164 4,696,117 4,584,782 3,666,288 8,712,123 35,688, ,476 2,943,613 5,059,291 1,821,941 4,862,497 4,428,662 3,282,389 9,913,832 33,264, Closed 3,455,690 4,881,987 1,807,451 4,232,962 4,021,372 1,433,898 5,617,695 25,451,055 LTV ,481,280 7,685,375 2,118,660 6,774,330 4,314,534 Closed 7,668,870 32,043, ,238,636 8,653,270 2,247,840 7,888,582 4,607,944 11,848,960 39,485, ,910,384 8,186,626 2,269,177 7,372,667 4,745,024 11,846,319 39,330,197 Cyprus/ Northshore ,417,255 8,136,923 2,265,876 7,798,292 4,809,930 2,384,061 12,709,299 42,521, ,374,068 8,016,302 2,337,141 6,887,320 4,850,261 1,986,223 12,470,635 39,921, ,571,784 7,801,946 2,109,743 6,622,640 4,997,512 1,394,451 12,351,795 38,849, ,124,040 7,244,015 2,403,766 7,403,623 2,758,923 3,406,029 13,509,891 39,850, ,862,373 8,192,141 2,511,292 7,470,635 1,732,469 3,434,979 13,473,020 41,676,909 Northshore/CCI ,141,072 8,386,431 2,560,350 7,440,366 5,026,048 3,658,130 12,788,787 45,001, ,842,571 7,910,004 2,530,053 7,182,697 4,775,999 4,071,680 12,560,634 43,873, ,964,481 7,479,612 2,388,631 7,168,585 5,108,503 4,059,463 13,646,373 44,815, ,773,026 7,608,548 2,550,795 6,657,167 5,260,207 4,182,872 13,291,377 44,323, ,342,770 6,623,571 2,658,663 6,593,497 5,225,632 3,678,803 12,169,971 41,292, ,850,443 8,008,869 2,698,927 7,305,807 5,459,565 4,075,170 13,561,035 44,959, ,159,792 5,891,288 2,629,420 69,209 4,371,589 2,648,289 11,858,907 31,628, ,204,799 7,408,541 2,661,129 5,463,637 3,979,283 13,794,178 37,511,567 United Keewatin Taconite Taconite ,630,242 7,769,999 2,657,673 4,376,891 4,683,657 13,231,018 34,349, ,030,871 8,101,948 2,693,971 5,343,915 4,912,594 14,327,728 39,411, ,836,140 8,147,611 2,558,197 5,196,512 4,799,887 13,996,412 39,534,759 Mittal Steel USA ,207,096 8,125,923 2,707,562 5,234,336 4,970,526 13,702,701 38,948,144 ArcelorMittal ,278,708 7,265,682 2,495,201 5,220,394 4,975,108 12,750,828 37,985, ,986,395 8,058,366 2,571,803 4,663,703 5,299,304 13,588,239 39,167,810 Totals 40,125, ,116, ,667,162 72,406, ,555, ,055, ,348, ,927,480 1,746,201,664 Numbers after 1986 do not include flux. Beginning with 1990, all weights are dry. Taconite production tax report tonnages are used. 3

8 Figure 4 Minnesota Taxes Levied on Taconite Production year(s) Unmined taconite tax Use tax Production (net) 1 tax Occupation Royalty tax School bonds tax 3 Railroad gross Total taxes Total tons 2 earnings tax 4 produced 5 Total taxes per ton $4,536 $3,345 $7,881 N/A N/A ,523 57,671 $122,625 $11, ,902 N/A N/A ,457,832 $1,046,907 1,730,615 6,410,394 2,570,566 14,216,314 42,259,000 $ ,884,757 6,830,282 1,926,246 8,372,662 5,843,668 27,857,615 81,923, $64,000 12,558,526 10,726,680 3,519,487 7,518,661 7,982,248 42,369, ,015, ,000 $7,214,111 65,013,384 44,909,601 9,262,076 3,841,750 12,321, ,626, ,013, ,966 45,967, ,497,931 78,350,978 18,142, ,437 14,733, ,016, ,883, ,573,792 36,976, ,270,806 63,263,212 20,447,300 2,740,712 10,904, ,177, ,940, ,497,620 29,428, ,393,166 14,932,330 9,581,602 2,954,752 4,472, ,474, ,309, ,935 13,022,869 78,929,646 2,057, , ,879 95,609,978 42,521, ,551 11,385,280 82,411,317 2,007, , ,692 97,412,587 39,921, ,596 11,255,028 82,035,382 1,551,335 1,010, ,193 96,346,739 38,849, ,119 11,991,300 80,195,972 1,708,731 1,020, ,079 95,411,832 39,850, ,176 13,136,780 81,500,355 2,301, , ,841 98,485,558 41,676, ,946 14,494,154 85,704,654 3,158, , , ,983,465 45,001, ,792 11,980,487 90,512,836 2,460, , , ,145,070 43,873, ,630 11,920,451 94,704,666 2,508, , , ,406,414 44,815, ,543 8,186,527 94,268,103 2,121, , , ,759,046 44,323, ,764 4,412,174 93,063,942 2,225, , ,219,206 41,292, ,428 6,131,394 94,540,947* 2,183, , ,361,031 44,959, ,140 (1,652,702) 72,842,808* 56,153 71,861 71,634,260 31,628, , ,287 74,814,128* 1,340,700 24,636 77,340,784 37,511, ,173 1,197,577 72,497,652* 1,441,500 20,483 75,457,385 34,349, ,601 8,514,814 79,262,806* 5,659,500 17,208 93,727,929 39,411, ,687 7,825,884 78,544,450 6,650,000 14,287 93,206,308 39,534, ,102 8,744,868 84,451,384 7,736,000 13, ,477,489 38,948, ,033 6,603,598 85,644,627 10,358,000 12, ,113,533 37,985, ,991 9,554,673 89,630,648 23,388,181 8, ,049,470 39,167, Taxes often levied (assessed) for one year and paid in the following year 1. Total use tax less total refunds paid after 1990, see Figure Amount Paid (unaudited).does not include adjustments. 3. Repealed effective after December 31, Repealed effective after December 31, Beginning with payable 1990, taconite railroads were taxed on an ad valorem basis. 5. Tons are without flux additive beginning in Beginning in 1990, production tons are reported dry. * Full amount of tax levied. Does not include bankruptcy adjustments. 4

9 Taconite Production Tax (Minnesota Statutes and ) Definition General Information The taconite production tax is a severance tax paid on concentrates or pellets produced by the taconite companies. It is paid in lieu of ad valorem (property) taxes on taconite and lands containing taconite. Land and structures used in the production of taconite are also excluded from property tax, with some exceptions (see pages 45 and 46). Electric power plants principally devoted to the generation of power for taconite mining and concentrating are considered to be used in the production of taconite (or direct reduced ore) and are covered by the in lieu exemption for property taxes. If part of the power is used for other purposes, that proportion of the power plant is subject to the general property tax. The power plant must be owned by a company subject to production tax to qualify for the exemptions. Tax Rate The taconite production tax rate for any given year is determined by multiplying the prior year s rate by the percentage change in the Gross Domestic Product Implicit Price Deflator (GDPIPD) from the fourth quarter of the second preceding year to the fourth quarter of the preceding year. The U.S. Department of Commerce publishes the GDPIPD monthly in Survey of Current Business. This escalator takes effect each year unless the rate is frozen or changed by the Minnesota State Legislature. The tax rate for the 2008 production year was $2.316 per taxable ton. For concentrates produced in 2009, the rate will be $2.364 per taxable ton. Taxable Tons The production tax is levied on taxable tons, which are the average tons produced during the current year and the previous two production years. This eliminates the peaks and valleys of tax payments by the taconite producers and distribution to the tax recipients. The result is a more stable tax base resembling a property tax. Distribution Under Minnesota law, production tax revenues are distributed to various cities, townships, counties and school districts within the Taconite Assistance Area. This is an area comprising the present taconite mining areas plus areas where natural ore was formerly mined. Funds are also allocated to the Iron Range Resources (IRR), which administers the Taconite Environmental Protection Fund, the Douglas J. Johnson Economic Protection Trust Fund, the Taconite Economic Development Fund (sometimes referred to as the Investment Tax Credit), the Taconite Assistance Program and other loan and grant programs for both the range cities and townships and the taconite industry. More information about the IRR can be found on pages Payment Dates and Method For taxes payable in 2004 and thereafter, the payments are due 50 percent on February 24 and 50 percent on August 24. If the 24th falls on a weekend or holiday, the payment date is the next regular work day. The Department of Revenue must notify each taconite producer of its tax obligation for the year by February 15. Each taconite producer must make payments to six counties and the IRR on or before the due date. Payments are made to Aitkin, Cook, Crow Wing, Itasca, Lake and St. Louis Counties, and to the IRR. The county auditors then make payments to cities, townships and school districts. Producer Grant and Loan Fund (M.S ) The producer grant program was renewed by the 2005 legislature. The amount allocated is 5 cents per ton (cpt) plus the revenue generated by the tax rate increase for the 2004 production year. The 2005 distribution was entirely allocated to the City of Virginia for the steam heating system. The 2006 distribution was allocated to the cities of Hibbing and Virginia public utilities for biomass conversion. The 2007 distribution was allocated to the City of Tower for the East Two Rivers project. For distributions in 2008, the first $2,000,000 is allocated to St. Louis County for the relocation of St. Louis County Road 715. The remainder of the 2008 distributions must be paid to St. Louis County for a grant to the city of Virginia for connecting sewer and water lines to the St. Louis County maintenance garage on Highway 135, further extending the lines to interconnect with the city of Gilbert s sewer and water lines. The amounts in 2009 and later, are allocated for projects under the Taconite Area Environmental Protection Fund. Taconite Economic Development Fund (M.S ) The Taconite Economic Development Fund (TEDF) was first created for production years 1992 and 1993 at a rate of 10.4 cents per taxable ton. No distribution is made under the TEDF in any year in which total industry production falls below 30 million tons. Any portion of the TEDF fund not released within one year of deposit is divided, with two-thirds to the Environmental Protection Fund and onethird to the Douglas J. Johnson Economic Protection Trust Fund. To date, all funds have been approved and released to the taconite producers before the deadline expiration. The 2001 legislature made the TEDF permanent at 30.1 cpt for distributions in 2002 and thereafter. The first 15.4 cents (of the 30.1 cents) does not require a matching investment by the company. A matching expenditure of at least 50 percent is required to qualify for the additional 14.7 cents per ton (above 15.4 cents). 5

10 In addition: If a producer uses money from the fund to procure haulage trucks, mobile equipment, or mining shovels, and the producer removes the piece of equipment from the taconite tax relief area defined in section within ten years from the date of receipt of the money from the fund, a portion of the money granted from the fund must be repaid to the taconite economic development fund. The portion of the money to be repaid is 100 percent of the grant if the equipment is removed from the taconite tax relief area within 12 months after receipt of the money from the fund, declining by ten percent for each of the subsequent nine years during which the equipment remains within the taconite tax relief area. Each producer has two potential sources of TEDF money: 1. Acid or flux pellets The production tax amount credited to each producer s share of the Taconite Economic Development Fund is 30.1 cpt. 2. Pellet chips and fines This remains the same as last year an amount equal to 50 percent of the tax for pellet chips and fines sold not exceeding 5/16-inch, is allocated to each company s share of the Taconite Economic Development Fund. The total amount may not exceed $700,000 for all companies. If the total claimed exceeds $700,000, each company s share will be prorated. The determination of this allocation is based on current production year sales of chips, fines and concentrate not the three-year average of production. Sales of crushed pellets do not qualify for this credit. [M.S , subd. 9a(b).] Therefore, each company is eligible to receive 30.1 cents per taxable ton plus an additional amount based on current year tons of chips and fines sold. A list of TEDF-funded projects and yearly distributions is shown in Figure 21. Flux Pellets Flux pellets have limestone or other basic flux additives combined with the iron concentrates before pelletizing. Three companies, Minorca, Northshore and USS, produce fluxed pellets, although all have experimented with them. United Taconite, Hibbing Taconite, Keewatin Taconite and Northshore are producing a partially fluxed pellet containing a low percentage of limestone additives. M.S , subd. 1 (f) allows the weight of flux added to be subtracted from the pellet weight for production tax purposes. All tables in the Minnesota Mining Tax Guide with production statistics use an equivalent or calculated weight for fluxed pellets. The taxable weight is the dry weight less the weight of the flux. The weight of the flux is determined by a metallurgical calculation based on the analyses of the finished pellet, the concentrate and the flux stone. Beginning in 1988 (1987 production year), a flux credit was allowed against production tax. Occupation tax is based on iron units and uses the full weight including flux. A reconciliation of both tonnages and the flux weight is shown on Figure 26. Pellet Weighing Pellet tonnages are reported on a dry weight basis. This began with the 1990 production year. Definition of Taconite Tax Relief Area One common prerequisite exists for all taconite aids and grants; the recipient must be within the geographic confines of the Taconite Tax Relief Area or the Taconite Assistance Area. This is defined by state laws (M.S and M.S ) as follows: Tax relief area means the geographic area contained within the boundaries of a school district that meets the following qualifications: (1) It is a school district in which the assessed valuation of unmined iron ore on May 1, 1941, was not less than 40 percent of the assessed valuation of all real property and whose boundaries are within 20 miles of a taconite mine or plant; or (2) It is a school district in which, on Jan. 1, 1977, or the applicable assessment date, there is a taconite concentrating plant or where taconite is mined or quarried or where there is located an electric generating plant which qualifies as a taconite facility. Definition of Taconite Assistance Area A taconite assistance area means the geographic area that falls within the boundaries of a school district that contains a municipality in which the assessed valuation of unmined iron ore on May 1, 1941, was not less than 40 percent of the assessed valuation of all real property. Any area within the Taconite Tax Relief Area is also considered to be within the Taconite Assistance Area. State Contribution ( State Aid Amount; Appropriation) The commissioner of revenue shall determine a state aid amount equal to a tax of 33 cents per taxable ton of iron ore concentrates for production year 2001 and 22 cents per taxable ton of iron ore concentrates for production years 2002 and thereafter. There is appropriated from the general fund to the commissioner an amount equal to the state aid determined under this section. It must be distributed under M.S , as if the aid were production tax revenues Legislation Production Tax For 2008 Production, Distributions in 2009 only: 1. A special account was established in the Taconite Environmental Protection Fund and it received 15.5 cents per ton that otherwise would have gone into the Taconite Property Tax Relief Account. The funds in this special account are to be used for cooperative projects between Iron Range Resources and local governments for renewable energy initiatives. 6

11 For 2009 Production and Distributions in 2010 and thereafter: If mining or concentrating takes place in more than one taxing district, the distribution of proceeds was changed from 40% mining/60% concentrating to a 50/50 split between mining and concentrating. This applies to the 4.5 cent City and Towns Fund, the 3.43 cent School Fund, and both the cent County Fund and County Road and Bridge Fund. If a school district that has mining or concentrating has excess money that would have otherwise reduced state aid under 2008 laws then the amount of the excess shall be distributed to cities and towns withing the school district. Distribution of Funds (Minnesota Statute ) Subd. 2 - Taconite Cities and Towns Fund (a) The Taconite Cities and Towns Fund allocates 4.5 cents per ton to cities and towns where taconite mining and concentrating occur. Forty percent goes to cities and townships in which mining activity occurs. The remaining 60 percent goes to cities and townships in which concentrating taconite occurs. Note: This is done on a company-by-company basis. If both mining and concentrating take place in a single taxing district, the entire 4.5 cents is allocated there. If mining occurs in more than one city or town, the revenue (1.8 cpt) is divided based on either a percentage of taconite reserves or a four-year production average. Most taconite mines have mining in two or more areas. If concentrating is split between two or more cities or towns, the revenue (2.7 cpt) is divided by the percentage of hours worked in each. The primary crusher is considered the first stage of concentration. The only current examples are Northshore (Babbitt, Beaver Bay Township and Silver Bay), former LTV (Hoyt Lakes and Schroeder Township- LTV powerplant), and United Taconite (Eveleth, Fayal Township, and McDavitt Township). Beaver Bay Township qualifies due to the location of the tailing basin that is part of the concentrating process. Distribution detail is shown in Figure 10. (b) Mining Effects Four cents per taxable ton is allocated to cities and organized townships affected by mining because their boundaries are within three miles of a taconite mine pit that was actively mined in at least one of the prior three years. If a city or town is located near more than one mine meeting the criteria, it is eligible to receive aid calculated from only the mine producing the largest taxable tonnage. When more than one municipality qualifies for aid based on one company s production, the aid must be apportioned among the municipalities in proportion to their populations. One-half of the money must be used for infrastructure improvement projects and one-half for projects in which two or more municipalities cooperate. The IRR has provided some guidelines for appropriate use of these funds: 1. One half for infrastructure improvement projects: Public buildings - construction or major maintenance; does not include normal cleaning and maintenance or janitorial services Water and sewer systems Streets, sidewalks, roads and bridges Parks and recreational facilities Public trails Does not include mobile equipment 2. One-half for cooperative projects between two or more communities: Parks and recreational facilities Public trails or other community facilities Public services such as recreational activities, law enforcement and fire protection Other joint ventures Use of mining effects fund is not limited to the above examples. Cooperative projects are not limited to communities that receive a mining effects distribution. For example, community A, which receives mining effects aid, can undertake a project with community B, which does not. A community should report to the IRR by January 15 of the year following the receipt of the mining effects aid. Reports should be submitted to Richard Walsh, Grants Administrator, IRR, 4261 Hwy 53 South, P.O. Box 441, Eveleth, MN Subd. 3 - Taconite Municipal Aid Account (a) The Taconite Municipal Aid is funded at 12.5 cents per taxable ton. The Kinney-White allocation (par. b) and the.3 cent Range Association of Municipalities and Schools (RAMS) allocation in subd. 8 are subtracted from it. The payment is made on September 15. Each city or township first receives the amount it was entitled to receive in 1975 from the occupation tax. The amount is then reduced according to the percentage aid guarantee provisions in M.S For example, if production levels mandate a 90 percent aid guarantee, then the occupation tax grandfather amount is also reduced to 90 percent. The remainder of the aid is distributed according to a complex formula using levies, valuation, population and fiscal need factors. The first step in this formula is to determine the fiscal need factor (FNF). The FNF is a three-year average of the sum of the local government aid (LGA), local levy and production tax revenues received by the community. Next, the local effort tax capacity rate equals the fiscal need factor per capita (FNFPC) divided by 17. If the FNFPC is greater than 350, the local effort tax capacity rate (LETCR) is 350 divided by 7

12 17 plus the excess over 350 divided by 15. The minimum allowable LETCR is The final step in this formula is to compute the distribution index (DI). The distribution index for a community equals its FNF minus LETCR times the adjusted net tax capacity divided by 100. If FNFPC < 350, LETCR = FNFPC 17 If FNFPC > 350, LETCR* = (FNFPC- 350) DI = (FNF minus LETCR*) x Adjusted Net Tax capacity 100 * Minimum allowable LETCR = 8.16 A distribution index is determined for all eligible communities. A percentage is determined by comparing the distribution index of a particular community to the total of distribution indexes for all eligible communities. This percentage is then multiplied by the amount of available municipal aid to determine an amount for each community. Prior to this calculation, the occupation tax grandfather amounts and special aid for the city of Kinney and township of White are subtracted from the total available to the municipal aid fund. The conditions necessary for a municipality to qualify for this aid are identical to the qualifications for the 66 percent taconite property tax relief listed under subd. 6 (see page 9). The state laws governing Municipal Aid are M.S , , Subd. 1, Clause 2, and Distribution detail is Figure 10. (b) and (c) - Additional money is allocated to cities and townships if more than 75 percent of the city s assessed valuation consisted of iron ore as of Jan. 2, 1980, or if more than 75 percent of the township s assessed valuation consisted of iron ore on Jan. 2, The distribution is calculated using certified levies, net tax capacities and population. Currently, only White Township and the city of Kinney qualify. (d) The Township Fund is funded at 3 cents per ton for townships located entirely within the taconite tax relief area for 2009 distributions. For distributions in 2010 and subsequent years, the three cents is escalated in the same proportion as the Implicit Price Deflator as provided in section subdivision 1. The money is distributed to the townships on a per capita basis with a maximum of $50,000 per township. If a township would receive more than $50,000, the portion that exceeds $50,000 is redistributed among the townships under $50,000. Special Municipal Aid (M.S. 126C.48, Subd. 8) Legislation passed in 2002 authorizes some cities and townships to receive aid from money allocated to their school districts for levy reduction to the extent that the levy reductions exceed the school s levy limitations. Subd. 4 - School Districts (a) Seventeen and fifteen-hundredths (17.15) cents per taxable ton was distributed in 2008 under (b) and (c) plus the amount in paragraph (d). (b) (i) Taconite School Fund (3.43 cents) A total of 3.43 cents per taxable ton for each taconite company is allocated to school districts in which mining and concentrating occurs. If the mining and concentrating take place in separate districts, 40 percent is allocated to the location of mining and 60 percent to concentrating. In addition, if the mining occurs in more than one school district, the 40 percent portion is further split based on either a four-year average of production or a percentage of taconite reserves. If the concentrating function of a company takes place in more than one school district, the 60 percent portion is further split according to hours worked in each district. The primary crusher, tailings basin and power plant owned by a taconite company are considered part of concentrating. When these are in different school districts from the plant, the hours-worked split is used. Distribution details in Figure 11. (b) (ii) School Building Maintenance Fund Four cents per taxable ton is allocated to specified school districts, based on proximity to a taconite facility, to be used for building maintenance and repairs. The money allocated from each taconite facility shall be apportioned between its recipient school districts based on pupil units. a. b. c. d. e. Keewatin Taconite proceeds are allocated to the Coleraine and Nashwauk-Keewatin districts. Hibbing Taconite proceeds are allocated to the Chisholm and Hibbing districts. ArcelorMittal and Minntac proceeds are allocated to the Mountain Iron-Buhl, Virginia, Mesabi East and Eveleth- Gilbert districts. Northshore mining proceeds are allocated to the St. Louis County and Lake Superior districts. United Taconite proceeds are allocated to the St. Louis County and Eveleth-Gilbert districts. This additional money is not subject to the 95 percent levy limitations in section 126C.48, subdivision 8. (c) Regular School Fund (15.72 cents) A total of cents per taxable ton is split among the 15 school districts in the Taconite Relief Area. Each school district receives the amount it was entitled to receive in 1975 from the taconite occupation tax (under M.S ). This amount may be increased or reduced by the percentage aid guarantee provisions of M.S The remaining 8

13 amount in the fund is distributed using an index based on pupil units and tax capacities. Generally, districts with larger tax capacities per pupil unit tend to receive a proportionately smaller amount of this fund. Two cents per ton of this distribution is not subject to the 95% levy limitation in M.S. 126C.48, subd. 8. Distribution detail is in Figure 11. The index is calculated as follows: The pupil units for the prior school year are multiplied by the ratio of the average net tax capacity per pupil unit of all taconite districts to the adjusted net tax capacity per pupil unit of the district. Each district receives the portion of the distribution that its index bears to the sum of the indexes for all taconite school districts. (d) Taconite Referendum Fund (21.3 cents) The Taconite Referendum Fund (TRF) receives an allocation of 21.3 cents per taxable ton. Taconite school districts qualify for an additional $175 per pupil unit over and above state aids by passing a special levy referendum equal to 1.8 percent of net tax capacity. The pupil units used in the computation are the greater of the previous year or the school year units. On July 15, the TRF pays the difference between the local levy and $175 per pupil unit. If any money remains in the fund, it is distributed to the Environmental Protection Fund (two-thirds) and the Northeast Minnesota Economic Protection Trust (onethird). Note: A district receiving money from the TRF must reserve the lesser of $25 or the amount received per pupil unit (of the $175 authorized) for early childhood programs or outcome-based learning programs. The commissioner of the Minnesota Department of Education must approve the outcome-based programs. Distribution detail is in Figure 11. (e) Each school district is entitled to receive the amount it received in 1975 under (Occupation Tax Grandfather). Subd. 5 - Counties (a) The allocation of cents per taxable ton to taconite counties (subject to adjustment by M.S ) is to be distributed under subd. 5(b) through (d). The amounts listed in (b) and (d) are the statutory amounts prior to any adjustment by M.S Distribution detail is in Figure 13. (b) Taconite Counties with Mining or Concentrating An amount of cents per taxable ton is distributed to the county in which the taconite is mined or quarried or in which the concentrate is produced (split in the same manner as taconite cities and towns), less any amount distributed in subd. 5(c). Distribution detail is in Figure 13. (c) Counties - Electric Power Plant If an electric power plant owned by and providing the primary source of power for a taconite plant is located in a county other than the county in which the mining and concentrating processes are conducted, one cent of the 13 cents per ton (for that company) is distributed to the county in which the power plant is located. This one cent is not escalated but is subject to M.S adjustment with variable guarantee. Cook County continues to receive aid based on the former LTV power plant due to the guarantee provided by M.S For the 2008 production year, this amounted to $91,474. The only company whose distribution is affected is the former LTV Steel, due to its power plant location at Taconite Harbor in Cook County. Its one cent per ton distribution for the 1983 base year was figured on 9,793,639 tons. This amount was carried forward from 1979 based on a previous guarantee. The current year M.S guarantee percentage is always applied. $97,936 (1983 base) x % = $ There is also a transfer of $21,041 ({1983 base of $22,528} x % to the county fund covered in Subd. 6(b). Therefore, Cook County receives a total of $112,515 ($91,474 + $21,041) due to the LTV power plant. (d) Taconite County Road and Bridge Each county receives a portion of the aid that is deposited in the County Road and Bridge Fund in the same manner as taconite cities and towns. The basic allocation is cents per taxable ton subject to adjustment as in M.S Distribution detail is in Figure 13. Subd. 6 - Taconite Property Tax Relief (a) Taconite Property Tax Relief The amount sent to this fund was set by the 2001 legislature at 33.9 cents per taxable ton for the 2002 production year. For the production year 2002 and subsequent years, the fund is subject to indexing by using the Gross Domestic Product Implicit Price Deflator. The indexed amount was cents per ton for the 2007 production year. The qualifications and distribution of taconite property tax relief are described in the following paragraphs. The Taconite Homestead Credit reduces the tax paid by owners of certain properties located on the Mesabi and Vermillion ranges located within the taconite relief area. The properties receiving this credit are owner-occupied homes and owner-occupied farms. The tax on all the land comprising the farm is used in determining the amount of credit for a farm. If an owner-occupied home or farm is located in a city or town that contained at least 40 percent of its valuation as iron ore on May 1, 1941, or which had a taconite mine, processing plant, or electric generating facility on January 1, 1977, or currently has a taconite mine, processing plant, or electric generating facility, the taconite credit is 66 percent of the tax, up to a maximum credit of $ for taxes payable in If the property is not located in such a city or town, but is located in a school district containing such a city or town, the taconite credit is 57 percent of the tax, up to a maximum credit of $

14 The total amount of taconite property tax relief paid in each county and school district is listed in Figure 7. An example of the calculation is shown in Figure 8. State laws governing taconite property tax relief are contained in M.S to M.S and M.S , Subd. 6. This is guaranteed by the Northeast Minnesota Economic Protection Fund as stated in M.S b) Electric Power Plant Aid from Property Tax Relief For any electric power plant located in another county, as described in 5(c), cent per taxable ton (cpt) from the Taconite Property Tax Relief account is paid to the county. The distribution is subject to the M.S variable guarantee. For the 2008 production year, $21,041 was distributed, with the entire amount coming from the M.S guarantee (calculation details on page 9 under (c) counties). (c) Electric Power Plant Aid from Property Tax Relief This subdivision allocates cent per LTV s taxable tonnage to the Cook County school district due to LTV s power plant in Cook County. The distribution is subject to the M.S guarantee at 31.2 percent or the variable rate, whichever is less. For the 2008 production year, $21,087 was distributed. This is calculated by multiplying the 1983 base of $67,586 x.312 = $21,087. Subd. 7 Iron Range Resources & Rehabilitation Board An amount of 6.5 cents per taxable ton escalated by the Gross National Product Implicit Price Deflator is allocated to the Iron Range Resources and Rehabilitation Board (subject to M.S guarantee). The funds are used by the IRRRB for general operating expenses and community development grants. Subd. 8 Range Association of Municipalities & Schools An amount equal to 0.3 cent per taxable ton (subject to M.S guarantee) is paid to the Range Association of Municipalities and Schools (RAMS) to provide an area-wide approach to problems that demand coordinated and cooperative actions. All cities, towns and schools in the taconite and iron ore mining area are included. This amount is subtracted from the Taconite Municipal Aid distribution in Subd. 3. Subd. 9 Douglas J. Johnson Economic Protection Trust Fund In addition to the amount provided in the remainder after all other distributions are completed, 3.35 cents per taxable ton is allocated to the Douglas J. Johnson Economic Protection Trust Fund for production year 1998 and thereafter. (9a) Taconite Economic Development Fund (9b) This subdivision is explained in detail on pages 25 and 27. Taconite Environment Fund Five cents per taxable ton must be paid to the taconite environmental fund for use under section , subdivision 4. (description is on page 5) 10 (9c) Temporary Distribution; City of Eveleth For distributions in 2007 through 2011 only, the City of Eveleth shall receive 0.20 cents per taxable ton for support of the Hockey Hall of Fame provided that an equal amount of donations have been received. Any amount of the 0.20 cent per ton that exceeds the donations shall be distributed to the IRRRB. (9d) Iron Range Higher Education Account Five cents per taxable ton must be allocated to the Iron Range Resources and Rehabilitation Board to be deposited in the Iron Range higher education account to be used for higher education programs conducted at educational institutions in the taconite assistance area defined in section The Iron Range Higher Education committee under section and the Iron Range Resources and Rehabilitation Board must approve all expenditures from the account. Subd. 10 Indexing Beginning with distribution in 2000 (1999 production year), the amounts determined under Subd. 6, paragraph (a), Subd. 7 and Subd. 9 are increased in the same proportion as the increase in the implicit price deflator as provided in Section , Subd. 1. Subd. 11 Remainder (a) After distributing all other aid, including school bond credits and payments, taconite railroad, and IRRRB payments, remainder is distributed of the two-thirds to the Taconite Environmental Protection Fund and one-third to the Douglas J. Johnson Economic Protection Trust Fund. The remainder includes interest earned on money on deposit by the counties. The amounts in (b) and (c) are taken from the initial amount prior to making the 2/3-1/3 distribution to the two funds. (b) Taconite Railroad Until 1978, the taconite railroad gross earnings tax was distributed to local units of government based on a formula of 50 percent to school districts, 22 percent city or town, 22 percent county, and six percent state. The respective shares were further split based on miles of track in each government unit. Beginning in 1978, the distributions were frozen at the 1977 level and funded from production tax revenues. The total amount distributed in 2008 is $2,482,454. Taconite railroad aids are not subject to the percentage reduction mandated for other aids by M.S and so remain constant from year to year. Beginning with the 2002 production year, the taconite railroad distribution to schools was reduced to 62 percent of the 1977 amount. (c) Occupation Tax Grandfather Amount to IRRRB In 1978 and each year thereafter, the amount distributed to the IRRRB was the same as it received in 1977 from the distribution of the taconite and iron ore occupation taxes: $1,252,520.